Social Enterprise

Social Enterprise David Garnett

Social enterprises are organisations where the money made is invested in social and community projects rather than distributed to shareholders. The notion of ‘enterprise’ is associated with entrepreneurship. J. Gregory Dees (2001) makes the point that contemporary writers on management theory do not so much emphasise the entrepreneur’s function of bringing about change as that of making the most of change when it occurs. In this way, the successful modern entrepreneur is regarded as a resourceful opportunist with a mind-set that sees the possibilities rather than the problems created by change. Dees suggests that successful leaders of social enterprises are “entrepreneurs with a social mission”.

In commercial businesses the creation of economic wealth is central to their purpose. Once created this wealth is reinvested in the business or distributed to the primary stakeholders, (e.g. shareholders or business partners). For social enterprises the published mission is central to their raison d’etre and economic wealth is seen as a means to an end and not an end in itself. They are concerned to create social value to be shared with the primary stakeholders (e.g. tenants, local communities, etc.). The creation and sharing of ‘social value’ is now seen as the key idea behind social enterprises.

In 2013 the Public Services (Social Value) Act came into force. Its enactment raised awareness of the notion of social value and encouraged its incorporation into the language and practices of procurement appraisal. Under this legislation, for the first time, public bodies are required to consider how the services they commission might improve the economic, social and environmental well-being of the areas in which they operate.

Housing is a social commodity
The interests in a particular housing development and its subsequent management extend beyond the specific concerns of the residents, owners or landlords. People and organisations that have no immediate or direct legal stake in a dwelling may still have concerns about its use or condition. These other-party concerns are variously termed non-proprietary interests, externalities or social returns, according to the context in which they are being discussed. To the extent that its provision, use and maintenance are seen to be of concern to the wider community, housing possesses characteristics that can lead to it being classified as a social commodity in which non-proprietary as well as proprietary interests are vested.

The wider community may have concerns about particular housing that go beyond, or can even be in conflict with, the interests of those with proprietary stakes in the properties. For example, a housing association or a private company may wish to pursue their welfare or commercial objectives by developing a plot of land with a view to providing dwellings to let: the resultant development might obscure a view, create traffic congestion, destroy a wildlife area, or in some other way affect the interests of others.

Other examples of the ways in which housing be might be considered a social good include the following.

1. Because nearly all dwellings in all tenures are built to a standard that ensures that they outlive their initial occupiers, housing production caters for future as well as current housing needs and demands. In this sense housing can be regarded as a national social asset, held in trust by one generation for the next.

2. Research findings have long demonstrated a clear link between homelessness and poor housing and people’s health and vulnerability to crime. Furthermore, there is a recognised, albeit ill defined, link between housing conditions and educational performances. There has been an historical reluctance on the part of governments to accept the links between poor housing and social issues. A famous example was the government’s rejection in 1980 of the Black Report’s finding on the links between poor housing and ill health. Since the 1990s the links have been more readily accepted but financial constraints still make it difficult to persuade ministers to invest public funds in housing projects on the basis that such investments will reduce social inequality and its associated problems.
3. Together with roads, schools, hospitals, etc., housing constitutes part of an area’s infrastructure and, as such, plays a significant part in the promotion of its economic growth and prosperity. In particular, an appropriate supply of good quality housing is needed to attract and retain a skilled and qualified workforce. Regional planning and growth committees such as the Local Enterprise Partnership boards generally accept the links between housing investment and economic growth.

4. Because the condition of an individual dwelling has a ‘spill-over effec’t on the use and exchange values of neighbouring properties, how one proprietor maintains or uses his or her property can affect the interests of neighbouring proprietors. It is in recognition of the interconnected nature of property interests that society gives local planning authorities powers to approve both new construction and alterations to existing buildings.

For all these reasons it is possible to argue that there exist community interests in the housing stock that are external to those with proprietary interests. The existence of external, non-proprietary, community interests in the size and condition of the housing stock is pointed to as one of the reasons for directing public expenditure into the housing system.

Social returns and the individual organisation
The long-standing issue surrounding the generation of social returns is that many community outcomes are real and important but intangible, difficult to measure and their receipt is spread over the life of the project or the building. By contrast, the investment needed to generate them is front-loaded, tangible and can be measured precisely. This contrast can create a disincentive to invest when it comes to social or community projects.

Any decision to invest in projects in order to generate a social return will always largely be a matter of judgement. Current techniques are designed to provide a transparent, clearly targeted and reasoned case for the investment that is independently verified and does not make exaggerated claims for the resultant benefits. Most of the techniques recommend the active involvement of stakeholders.

SROI (Social Returns on Investment) is an analytic tool developed by the New Economics Foundation to account for (and measure) a much broader area of value outcomes than is captured by traditional economic calculations. In particular, it seeks to take into account the social, economic and environmental consequences of economic activity. Its key feature is that it values outcomes by using financial proxies so that VFM decisions can be made using monetary measures. Its application can demonstrate to potential funders and internal decision-makers that, for example, a proposed investment will have a multiplier effect on local economic growth or internal cost savings when social returns are taken into account.

Most social housing providers are not-for-profit organisations. The notion of ‘not-for-profit’ in itself implies that generating a social return is an integral part of the agency’s mission. Many social landlords now publicly declare that the pursuit of social returns is a key aspect of their business function. In the housing sector it has long been argued that, just as secure comfortable homes are at the heart of happy family lives, decent affordable houses are at the heart of thriving communities. A number of social housing agencies have extended their activities beyond the traditional landlord function to provide a variety of other services as part of their commitments to the wider communities in which they operate. The examples of such investments are legion and often involve some form of partnership arrangement. They range from such things as the provision of dog fouling notices and collection boxes to helping with the provision or refurbishment of community assets such as village halls and youth centres.

The emerging idea of ‘shared value’
The commitment to the creation of social value is intrinsically a matter of business culture. In recent years there has developed a significant shift in business thinking around the notion of shared value. Based on research and analysis carried out at the Harvard Business School, new ideas are emerging about the appropriate relationship between business and society.

Many firms declare a commitment to corporate social responsibility (CSR). This can be thought of as an approach to business that actively seeks to make a positive contribution to society. In practice the term can refer to a wide range of actions that companies may take, from donating to charity to reducing carbon emissions. The Harvard approach argues for the efficacy of instigating more fundamental changes in business thinking and suggests that in the political and commercial climate following the financial crisis of the late 1980s, successful companies need to review their relationships with society. The criticism of CSR is that it does not represent a full cultural commitment to being a valued part of society but rather that it maintains an “old-fashioned” (and increasingly inappropriate) view of nineteenth and twentieth century benevolent capitalism. By failing to embed the creation of social value into the business plan, the advocates of shared value argue that the ‘good works’ of the corporately responsible firm are little more than ‘bolt-ons’ to their traditional ways of working.

Social organisations and government entities often see success solely in terms of the external (e.g. community) benefits achieved or the money expended. The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. This approach moves away from a business model in which the firm donates a small proportion of its distributable profits to ‘good causes’ to one in which proper recognition is given to the fact that the addressing of societal concerns yields direct productivity benefits to the firm.

Measuring and declaring a ‘social dividend’
There does not yet exist an agreed approach to the measurement of social returns that is equivalent to the International Accounting Standards Board. However, the current operating climate for social landlords is increasingly challenging and it is now regarded by many as being important that organisations can demonstrate to funders, governing boards, regulators and stakeholders the value of what is being delivered. Building homes is easy to quantify but many valuable social returns are more opaque. This has led many agencies not to attempt to declare a ‘social dividend’. A number of housing associations, however, are currently experimenting with ways of measuring (or at least describing) the social returns that are being generated by their activities.

Sally Cupitt (CES) has edited the Guide to Social Return on Investment and Jean Ellis had has edited the SROI Network’s Guide to Commissioning for Maximum Value. These can be downloaded from the SROI Network website.

Trotter L et al (2014), Measuring the Social Impact of Community Investment: A Guide to Using the Wellbeing Valuation Approach: HACT.